Signs of weakness shadow robust CBS earnings report

Analysts see cause for concern as the company swings to a profit and unveils a $1.5-billion share buyback plan.

CBS Corp. had planned to make a splash Tuesday with stronger-than-expected earnings and a $1.5-billion stock buyback program. But its shares slid as part of a massive market sell-off and worries on Wall Street that the CBS broadcast network may be showing rare signs of weakness.

"Growth at CBS network and radio remains concerning," Goldman Sachs media analyst Anthony Noto said in a report Tuesday. Bank of America broadcasting analyst Jonathan Jacoby said that for the fourth quarter, "CBS network revenue appears to have been weak."

CBS shares closed down $1.16, or 3.7%, at $30.24.

Although CBS' prime-time ratings are up for the season, primarily because of its telecast this month of the Super Bowl, several of its workhorse programs are showing signs of aging. The network took a hit on Thursday nights when its rival ABC, owned by Walt Disney Co., moved its wildly popular hospital drama "Grey's Anatomy" to compete against CBS' longtime juggernaut "CSI: Crime Scene Investigation."

Thursday is the most lucrative night of the week in television because advertisers are willing to pay a premium to influence weekend spending. Without sports, CBS' prime-time audience is down 3% compared with last season.

CBS Chief Executive Leslie Moonves didn't dwell on ratings during an early-morning conference call with analysts. He pointed out that CBS surpassed its financial goals in its first year as a stand-alone company. He also said CBS was raising its dividend 10%, its fourth increase since CBS split from Viacom Inc. in January 2006.

"The fourth quarter was a terrific cap on a great first year," Moonves said. "We've got a proven ability to generate cash and the discipline and vision to leverage that cash effectively for the long-term benefit of our shareholders."

Moonves projected low-single-digit revenue growth going forward. He noted that CBS' television stations benefited from all of the political spending in the fourth quarter to influence the November congressional races. And, he said, the next year and a half will bring another bonanza of political dollars because spending for the 2008 presidential contest is expected to reach an all-time high.

"Clearly the political race is heating up a lot faster than everybody thought it would," Moonves said. "The fireworks that are out there bodes well for us."

CBS' fourth-quarter earnings surpassed analysts' expectations. The New York-based company reported net income of $335 million, or 43 cents a share. In the fourth quarter of 2005, the company had a loss of $9.14 billion, or $12 a share, when it took a write-down to account for the reduced book value of its chain of TV and radio stations. After adjustments for taxes and stock-based compensation, CBS said, operating income rose 14% compared with a year earlier to $759 million.

Fourth-quarter revenue was up 2.5% to $3.9 billion.

Although the stock buyback was larger than what analysts had been expecting, CBS had previously signaled its intention to buy back shares.

The company's TV division received a boost in syndication fees from the sale of programs including "Star Trek: Voyager," "Frasier" and "CSI: Miami." Once again, the outdoor advertising division had the highest revenue growth -- of 10% -- of any CBS division.

Meanwhile, CBS' radio unit is still struggling to make up for the loss of shock jock Howard Stern. "It was a challenging year," Moonves said of the radio division. "We are not satisfied with its performance."

Merrill Lynch media analyst Jessica Reif Cohen said in an interview that she didn't share the view that CBS was exhibiting some chinks in its armor. The company's shares have soared by about 20% since its split with Viacom.

"It doesn't feel like the sky is falling," Reif Cohen said. "They've done an amazing job with the hand that they were dealt.... If there is any extra money lying around, Les is going to get it."